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Trade Desk (TTD) Beats on Q3 Earnings & Revenues, Guides Up

Total revenues were $79.4 million, up 50% from the year-ago quarter. The figure beat the Zacks Consensus Estimate of $77 million. The strong growth reflects improving contribution from mobile (In-App, Video and Web), which accounted for 40% of total customer spending.

Based on the solid results, management raised 2017 guidance, which however, failed to appease investors. Shares have declined more than 18.4% in the last two trading sessions.

We believe that the downside reflects management’s cautious approach regarding lower spending from some large advertisers. However, Trade Desk noted that the advertisers have become selective in spending their ad-dollars. Their growing preference for programmatic advertising bodes well for the company in the long run.

The Trade Desk Inc. Price, Consensus and EPS Surprise

Nonetheless, the selectiveness can delay spending, which doesn’t augur well for Trade Desk in the near term.

Additionally, some companies in the consumer packaged goods (CPG) and retail industries are reducing their advertising budgets to relieve margin pressure. This doesn’t bode well for Trade Desk in the near term.

Further, the company stated that events like the bankruptcy of Toys “R” Us does affect the growth trajectory (although in small amount) in the near term.

Nevertheless, we note that the stock has returned 74.9% year to date, substantially outperforming the 23.9% rally of the Internet Services industry.

Quarter Details

Omni-channel solutions continue to be the bread and butter segment for Trade Desk as the industry keeps gradually shifting to transparency and programmatic buying. On a year-over-year basis, Mobile in-app, Mobile video and Connected TV improved 77%, 140% and 159%, respectively.

Native spending was very strong in the reported quarter, surpassing the level attained through 2016. Customer retention rate was 95% in the reported quarter.

These were partially offset by a 150-bps decline in sales & marketing (S&M) expenses.

As a result, reported operating margin contracted 520 bps from the year-ago quarter to 23.2%.

Guidance

For fourth-quarter 2017, Trade Desk anticipates revenues of $101 million and adjusted EBITDA of $34 million.

Trade Desk currently anticipates revenues at $306 million, up from the previous guidance of $303 million, for 2017. Management expects adjusted EBITDA to be $90 million, up from $88 million.

For 2018, Trade Desk expects spend in connected TV to increase by more than 100%.

Moreover, international growth is anticipated at approximately double the U.S. business. Management expects footprint to expand, particularly in China.

Further, the amount of third-party data usage is expected to increase in 2018. Management believes that partnerships with companies like Oracle Corporation ORCL, Acxiom Corporation ACXM, Lotame and others will drive growth next year.

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